The finishing division of Paper Company had the following
results last year:

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Question: The finishing division of Paper Company had the following results last year: Net sales &nbsp…
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Net sales         
                       
                       
$1,000,000

Operating Income      
           
                       
$300,000

Average total
Assets                                      
$4,000,000

Management’s Target Rate of Return
           
12%

What is the division’s Return on Investment (ROI)?

What is the division’s profit margin ratio?

What is the division’s asset turnover ratio?

What is the division’s residual income?

Chair Company is considering an investment of $1,000,000 in
Equipment. It will yield cash flows of $400,000 for 8 years. Alpha
uses a discount rate of 9%. Calculate the present value
AND net present value of the investment.

Present Value of an Annuity of $1

5%

6%

7%

8%

9%

10%

1

0.952

0.943

0.935

0.926

0.917

0.909

2

1.859

1.833

1.808

1.783

1.759

1.736

3

2.723

2.673

2.624

2.577

2.531

2.487

4

3.546

3.465

3.387

3.312

3.240

3.170

5

4.329

4.212

4.100

3.993

3.890

3.791

Moderation Sports. has two product lines – Mountain Bikes and
Racing Bikes. Income statement data for the most recent year
follow:

Total

Mountain Bikes

Racing Bikes

Sales revenue

$500,000

$370,000

$130,000

Variable expenses

340,000

240,000

100,000

Contribution margin

160,000

130,000

30,000

Fixed expenses

    80,000

    40,000

    40,000

Operating income (loss)

$80,000

$90,000

$(10,000)

Using the above information, answer questions 5 & 6:

Assuming fixed costs remain unchanged, and that there would be
no adverse effect on other sales, how would dropping the Racing
Bikes affect operating income of the company?

If $20,000 of fixed costs will be eliminated by dropping the
Racing Bikes, how will operating income be affected?

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